Options trading can amplify investment potential while managing risk. McLane Advisors helps safeguard your portfolio and guide you through options strategies, empowering you to grow your investments confidently and achieve your long-term financial goals. Our proactive management ensures that we align with your objectives and retirement vision.
McLane Advisors delivers guidance to clients all over Texas through our Houston City & Elected Officials retirement planning service. We preserve clients hard-earned benefits and build financial security outside the office. With strategic planning, we tailor retirement strategies to fit your post-service goals.
What is options trading? Essentially, options trading allows investors to buy or sell contracts that give the right—but not the obligation—to trade an asset at a set price within a defined period. This versatile tool can be used to hedge against potential losses, leverage positions for higher returns, or strategically enhance your portfolio’s growth.
Understanding options trading begins with mastering the key terms. Below are ten crucial concepts every investor should know before entering the options market:
Strike Price
The predetermined price at which an option can be exercised. Calls allow purchase at this price, while puts allow selling. The strike price is essential for evaluating potential gains and determining strategy.
Expiration Date
The final day an option can be exercised. After this date, the option expires worthless if unused. Selecting the right expiration aligns with your market outlook and investment timeline.
Option Premium
The cost to buy an option, influenced by the asset price, strike price, time until expiration, and market volatility. The premium represents your investment and potential risk.
Call Option
Grants the right to buy an underlying asset at a specific price before expiration. Calls are typically used to profit from anticipated price increases or hedge other positions in your portfolio.
Put Option
Gives the right to sell an asset at a predetermined price before expiration. Puts protect against declines in asset value, providing a safeguard during market volatility.
Hedge
A strategy used to offset potential losses in your portfolio. Options can act as an insurance mechanism, preserving capital and reducing exposure to risk.
In-the-Money (ITM)
When an option has intrinsic value. Calls are ITM when the asset price is above the strike price; puts are ITM when the asset price is below the strike price. ITM options are more likely to be profitable.
Out-of-the-Money (OTM)
This is the case when an option has no intrinsic value. Calls are OTM when the asset price is below the strike price; puts are OTM when above. These options are often cheaper but carry higher speculative risk.
Volatility
Measures how much the underlying asset’s price fluctuates. Higher volatility increases option premiums and affects risk and reward, guiding strategic trading decisions.
Underlying Asset
The stock, ETF, or commodity on which the option contract is based. The asset’s price movement determines the option’s value and potential profitability.
Options Trading in Action
Options trading allows investors to enhance returns and/or manage risk. By buying calls or puts, you can hedge against portfolio risk, take a directional position with limited capital commitment, or provide short term leverage to existing positions. With strategic choices on strike price and expiration, options can provide flexibility, leverage, and protection in navigating market movements.
Sample Scenario:
Suppose you want to profit from Stock XYZ at $50 without buying it outright. You buy a call option with a $55 strike for a $2 premium per share. If the stock rises to $60, you earn $300; if it stays at $50, your loss is limited to the $200 premium.
Key Points to Ponder:
You control 100 shares for $200 instead of buying the stock outright ($50*100 = $5,000).
Maximum loss is the premium paid ($200).
Potential gain is leveraged if the stock rises above the strike price.
How McLane Advisors Guides Smart Options Investing
Choosing McLane Advisors gives you access to strategies rooted in integrity. We help you understand what options trading is, help minimize risk, and seize opportunities, empowering informed decisions that align with your long-term financial goals.
McLane Advisors simplifies understanding of options trading through tailored guidance. Protect investments, optimize growth, and confidently pursue financial goals. From hedging risk to exploring new opportunities, we help integrate options strategies into your plan for a more secure, strategic growth.
McLane Advisors: Trusted Texas financial advisors for three generations, providing tailored strategies for financial security in Texas and 23 other states.
Securities and advisory services offered through Centaurus Financial, Inc. Member of FINRA http://www.finra.org/index.htm and SIPC http://www.sipc.org/. A Registered Investment Advisor. Supervisory office: 540 Fort Evans Rd NE, STE. 200 Leesburg, VA 20176, 714-456-1790. McLane Advisors and Centaurus Financial, Inc. are not affiliated. This is not an offer to sell securities, which may be done after proper delivery of a prospectus and client suitability has been reviewed and determined. Information relating to securities is intended for use by individuals residing in TX,AL,AR,AZ,CA,CO,FL,GA,IA,ID,LA,MD,MO,MS,NC,NM,OH,OK,OR,PA,SC,TN,TX,UT,VA,WA,WI,WV.
Securities and advisory services offered through Centaurus Financial, Inc. Member of FINRA http://www.finra.org/index.htm and SIPC http://www.sipc.org/. A Registered Investment Advisor. Supervisory office: 540 Fort Evans Rd NE, STE. 200 Leesburg, VA 20176, 714-456-1790. McLane Advisors and Centaurus Financial, Inc. are not affiliated. This is not an offer to sell securities, which may be done after proper delivery of a prospectus and client suitability has been reviewed and determined. Information relating to securities is intended for use by individuals residing in TX,AL,AR,AZ,CA,CO,FL,GA,IA,ID,LA,MD, MO,MS,NC,NM,OH,OK,OR,PA,SC,TN,TX, UT,VA,WA,WI,WV.
